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Portugal lowered to junk status as big strike hits

By Barry Hatton

Associated Press

Published: Thursday, Nov. 24 2011 8:40 a.m. MST

A young man stops by the closed the gate of a subway station in Lisbon, Thursday Nov. 24 2011, during a general strike as trade unions protest austerity measures linked to a euro78 billion ($104 billion) international bailout. The Lisbon subway is to close all day Thursday while government offices, school classes, mail deliveries, trash collection and other public services likely to be severely affected.

Armando Franca, Associated Press

LISBON, Portugal — Portugal's efforts to climb out of its economic crisis suffered a double setback Thursday as its credit rating was downgraded to junk status and a major strike gave voice to broad public outrage over austerity measures that have squeezed living standards.

Portugal's deepening plight underlined Europe's difficulties in finding a way out of the continent's government debt crisis which has recently shown alarming signs of spreading to bigger nations, most notably Italy.

Like others in the 17-country eurozone, Portugal has embarked on a big austerity program to make its debts sustainable. Earlier this year, Portugal followed Greece and Ireland in taking a bailout to avert bankruptcy.

As in Greece, though, the government's tough medicine, which is required by international creditors in return for the €78 billion ($104 billion) in bailout money, is unpopular. The strike had a huge turnout, making it possibly the biggest walkout in more than 20 years.

"They are trying to destroy the national health service, and salaries haven't gone up since 2004," striking doctor Pilar Vicente told Associated Press Television News.

Fitch blamed Portugal's "large fiscal imbalances, high indebtedness across all sectors, and adverse macroeconomic outlook" for its decision to cut the country's rating by one notch to BB+. Rival Moody's already rates Portuguese bonds as junk but Standard & Poor's rates them one notch above.

Fitch's decision to cut Portugal to a non-investment grade will likely mean it's even more difficult for the country, which is already mired in a deep recession and is witnessing rising levels of unemployment, to return to bond markets by its 2013 goal. That raises the unappetizing prospect that Portugal, like Greece, may need a second bailout.

"Portugal's downgrade goes to show how hard it will be for troubled economies to pull themselves out of the crisis and how long this will take," said Sony Kapoor, managing director of Re-Define, an economic think tank. "The Portuguese downgrade highlights the limits of austerity policies both domestically in Portugal and in the wider euro area."

The 24-hour walkout came as Portugal, one of western Europe's smallest and frailest economies, endures increasing hardship as it tries to get its borrowing levels down.

The strike was called by Portugal's two largest trade union confederations, representing more than 1 million mostly blue-collar workers. Much of the private sector remained open for business though a huge Volkswagen car plant south of Lisbon, which accounts for 10 percent of Portuguese exports, decided to shut down production for the day because of problems facing its suppliers.

Much of the disruption was centered on the transport sector. Airlines canceled hundreds of international flights, and the airports of Lisbon, Porto and Faro were mostly empty as tens of thousands of workers walked off the job. Commuters had to get to work without regular bus or train services. The Lisbon subway was shut, and police said roads into the capital were more congested than normal.

Few staff were working at government offices, local media reported. Many medical appointments, school classes and court hearings were canceled, while mail deliveries and trash collection were said to be severely disrupted.

An unsustainable debt load and feeble economic growth over the past 10 years pushed Portugal towards bankruptcy earlier this year, forcing it to ask for a financial rescue.

In return for the aid, Portugal agreed to cut its debt burden to a manageable level by 2013. That goal requires it to enact deep spending cuts and hike taxes. Income tax, sales tax, corporate tax and property tax are all being increased. At the same time, welfare entitlements are being curtailed. Falling living standards have stoked outrage at the austerity measures.

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